Fed to hold down interest rates

The Federal Reserve announced Jun. 24 that it will keep its benchmark overnight interest rate at the rock-bottom level of zero to 0.25 percent, the lowest rate possible, and will continue to buy long-term Treasury bonds and other government-backed securities to support the nation’s mortgage and housing markets and improve conditions in private credit markets.

“Economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the Fed said in its statement.

Average interest rates on 30-year mortgages ticked up slightly after the Fed’s announcement, but are still at historically low levels. Indeed, the average interest rate on a 30-year fixed-rate mortgage was just 5.42 with 0.7 points on average for the week that ended June 25, 2009, the date of the Fed’s statement. The average rate for a 15-year fixed-rate mortgage was 4.87 percent, also with 0.7 points on average for the same week. Those averages are according to to Freddie Mac’s weekly survey of mortgage interest rates.

These low stable interest rates are good news for borrowers who want to buy a home or refinance an existing mortgage.

The Fed doesn’t directly control long-term interest rates for mortgages, auto loans, credit cards or other types of consumer loans, but interest rates on those types of loans can be affected by the Fed’s decisions, actions and statements.

The Fed’s statement also contained an optimistic update on the outlook for the U.S. economy, future interest rates and inflation. Specifically, the Fed stated that:

The pace of economic contraction is slowing.

Conditions in the financial markets have improved.

Consumer spending may be stabilizing.

Businesses may be bringing inventories into better alignment with sales, and

Inflation is likely to remain subdued for some time.

Those trends, if they continue, are also positive signs for the economy and consumers.